Consumer Confidence, Home Prices Take A Nosedive

No longer. Now we are depressed. We’ve lost our confidence, consumers. Bloomberg reports that consumer confidence took its biggest hit since Hurricane Katrina made us all feel vulnerable and sad. From Bloomberg:

The New York-based Conference Board’s index of confidence declined to 105 from 111.9 in July. Economists had expected a reading of 104, according to a Bloomberg survey. Earlier today, another report showed home prices in the U.S. dropped by a record amount in the second quarter.

The housing recession is making it harder for Americans to tap home equity to finance the spending that accounts for 70 percent of the economy. A slowdown in hiring and slimmer pay raises may further weaken consumer sentiment and buying power.

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So what does this mean for people who don’t own houses? I mean, before the prices were so high that something like 70% of Americans couldn’t afford a house, and especially not in a major city. So is it more affordable now? Is it just not feasible to ever buy a house again?

I mean, I haven’t got any money personally, but it seems like most adults my age (mid-20’s) imagine themselves buying a house when they get older.

@spiderjerusalem: I think it depends on your circumstances. For me, it was feasible to buy a home 5 years ago. I was only 22, a year out of college, but I had a good job and great credit. Also, I was able to buy for cheaper than rent would be. I did NOT get any stupid financing (other than 100% financing), but even with that, I looked at all of the numbers beforehand to decide what I could afford (and interestingly enough, MY number of what I could afford and the bank’s number were drastically different, with the bank’s number being MUCH higher). Also, I didn’t buy in an inflated market, and I bought a small, cheap, starter home. It was a new construction, and the builder himself told me that he only makes about $10k on the house, so I knew that unless house prices crashed so hard that the cost of the final product was LESS than the cost of the materials, then I’d be fine. Also, I bought for the long-term with a fixed rate mortgage. IF you don’t over-extend yourself and buy something with a fixed note that you can afford (and plan on living there long term), the ups and downs of the housing market don’t affect you at all.

@ChrisC1234: Thank you for that, Chris. I’ve been looking at “Support Communities”…manufactured suburbs outside of major cities that house all the people who work in the city and can’t afford to actually live there, and I’ve wondered if those cookie-cutter communities would be affordable for someone with a portable job like teaching.

I think the big problem with the housing market has been created by several factors.

1)Real estate speculators, buying property just to sell it later at a higher price.

Schemes like that have never lasted very long.

2)over valued properties.

Sure the county tax assessor’s office says your house is worth $x but can you REALLY sell it for that? Alot of county tax assessors just play to the whims of politicians…the politicians don’t want to raise taxes, instead they raise your appraisal so they can charge you more without adjusting the tax rate. What also is inflating demand is all the people that think they can cut a fat profit from a rent house. So alot of existing homes sit vacant and off the market because they’re owned by people that don’t know the first thing about being a landlord.

3) Banks that are all too happy to give you a loan you can only marginally afford.

This sort of ties into number 2, the banks give you a loan you might be able to pay on for a couple years, you buid up some equity, then financial crisis erupts. The bank either gets paid off because you sold off the house you can no longer afford. Or they foreclose on you and get the house and later re-sell it. We’re starting to see the pitfalls of this in the subprime industry.

@ChrisC1234: I wouldn’t say “the ups and downs of the housing market don’t affect you at all.”

Recessions or crashes make housing more affordable, so people entering the market can buy a better house than they could have previously. (This is especially true in high-demand areas like Massachusetts, where many young people can’t afford a house at all unless prices keep coming down.)

But once you’re in a house and plan to stay there, the housing market only affects how much you’ll pay in property taxes. ;)

@CASSIFRAS
You should be able to get a mortgage as long as you’ve had a steady income and decent credit. My suggestion would be to go to a bank though. I’ve heard that there are some independent underwriters who will tell you that you’re qualified, and then not be able to get you the loan when the time comes.

@ChrisC1234: Best advice I’ve seen from someone in regards to buying a home.

I think too many people have bought into the hype that not owning a home makes you less of an American. Renting your home isn’t really throwing money away when you consider what you aren’t paying. Things like Homeowner’s insurance, property tax, repairs, mortgage interest. If you have a problem saving up an “emergency fund” for those high insurance premiums, the annual tax bill, or for that “OH SHIT” disaster in your house. Renting isn’t such a bad option.

The only way to make owning a home economical over renting is if you are capable and willing to perform most of your own repairs (assuming you don’t make more money than a plumber or electrician). I do all my own plumbing and electrical. My dad and I have replaced several water heaters in our time. We’ve replaced many feet of sewer line. The only thing we hire anybody to do is put a roof on the place. (My dad and I have pesticide applicator’s licences so we are also our own exterminators)

These surveys are always seem to reflect the positive or negative views that the survey company wants to convey. Bloomberg is running for president. Of course his numbers would reflect a dire need for economic change.

@Mr3vil: If it wasn’t at least a somewhat decent investment, we would have found that out a long time ago… Plus, the idea that owning is less economical than renting is against the laws of economics. How do companies or people succeed with renting out properties for a profit if it is not economical to own?

Has anyone thought that the consumer confidence isn’t actually all that bad except they are influenced by a couple million people running around with their heads cut off–obsessing about going into a permanent recession.

1. New housing starts way down from 2005.
2. Crisis intervention by the Fed Friday to rescue the top banks by letting them stoke the brokerage fires with capital.
3. Half a billion dollars positioned week in index options for a market crash (source)
4. Bankruptcy reform and subprime collapse are locking more and more people out (true, a lot of them dug their own grave, but lending makes the economy go round)
5. Continued shift of manufacturing out of the country and record trade deficits
6. Slow upward trend in oil prices putting the pinch on transportation & manufacturing.

Sorry, but I’m not putting any bets on a bull market. There are a lot of things wrong here.

@Mr3vil: If you don’t believe that when renting you’re paying your LANDLORD’s insurance (buying you no protection at all), property taxes (with no option to write them off your taxes), mortgage interest (again without any tax benefit to yourself) and allowing your landlord to build up a reserve of profit to cover any repairs you can convince him to make, you’re not taking a realistic look at this business.

I’m not saying that owning is the best thing for all people or in all markets, I’m saying that you’re paying those same expenses, just indirectly in the form of rent.

Because (barring exceptional circumstance or a nice/dumb landlord) _all_ of these fees get bundled into your rent!!! This NEEDS to be understood. Owners do NOT subsidize renters (caveat ibid).

Renters pay _at_least_ 100% of the cost of carrying the loans/mtge/ins/repair fund.

So the RENTER PAYS the mortgage interest and property taxes, the LANDLORD REAPS (to whatever extent allowed) all of the benefits while renter reaps none, save having a roof over her head. She even pays for that “free” new appliance.

disclosure: three time property owner, former landlord. I don’t have a problem with the status quo.

@betatron: I Think Mr.3vil’s point was that the bottom line cost to the renter is often far less than the combined costs of all of those categories to buy similar housing in the same market. That is, the point isn’t avoiding taxes and insurance, but rather to enjoy a lower overall payment.

Here in Orlando, FL, my housing costs will more than double when I finally buy. The mortgage will be about 30-40% higher alone, and when you factor in property tax, insurance, home owner’s fees, all separate utilities, etc, you can easily pay twice as much.

So, while you may not be earning equity, you’re saving a significant chunk of income. Granted, I would of course like to buy eventually, but I can see the value of renting.

@RonDMC: But is the home you are buying equivalent to the place you are renting. If you are moving from an 800 square foot appartment to even a small cookie cutter house, you are probably bumping up to at least 1200 square feet and maybe a garage, plus at least some property.

Actually, the home I am buying would be a downgrade as I get a great deal renting a house from a friend with a friend. :P Not the norm, I know, but my housing costs are substantially below market norm.

Even so, I’m not really at a point in my life where I need all of the extra room, garage, etc. I’m also in my mid-twenties and by no means at my maximum level of income yet. For me, it seems more economical to rent for as little as possible while tucking away as much money as possible so I can buy when myu income is more suited to paying a high mortgage and all of that.

@not_seth_brundle: Yes, my point was, most people when comparing rent to buy are not comparing apples to apples. When I bought, I went from an apt to a house. Sure my payment went up, but I got 70% more internal square footage, a 2 car garage and a yard. Plus, if you think about it, the principle part of your payment is not really relevant to the rent/buy decision, only the interest + taxes + difference between homeowners insurance vs renters insurance. Just look at the principle payment as forced savings.

hooking up with a 6% 30 year fixed mortgage on decent property (anywhere except boomtown)might just be the smartest thing you could do. if we are indeed headed into an inflationary environment then you’ll be repaying your debt with pennies on the dollar and a 6% interest rate years from now will seem like the deal of a lifetime!

I hear you, I have a 15 year fixed at 4.375% and I transferred my car to a credit card with a 1.9% life of the loan rate (yes the card was empty and yes I cut it up to make sure no charges get added) the payments on the card are insanely low, but I direct the difference to high yield savings to pocket the difference. I’m halfway expecting them to call me and offer a discounted payoff just to get it off their books.